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Michael Noonan Edge Trader Plus Michael Noonan is the driving force behind Edge Trader Plus. He has been in the futures business for 30 years, functioning primarily in an individual capacity. He was the research analyst for the largest investment banker in the South, at one time, and he... More
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  • S & P - Waiting For A Weak Rally To Sell. Watch Developing Market Activity. 2 comments
    Jan 28, 2010 9:41 AM

    Thursday  28 January 2010

     Price finally found some initial support to stem the steep sell-off from
    the 1147 highs.  The trading range lows from November-December,
    1078 area, stopped price at 1078.50 in response to the FOMC
    announcement.  The horizontal support line that shows the previous
    two month's support was extended into the future, the broken line
    portion, and it shows the value of knowing where these areas are
    once approached again.

     The validity of that past support holding was demonstrated by the
    high end close of yesterday's bar and confirmed by the pick-up in
    volume.  It was most likely short-covering after the 50 point decline. 
    We often state that what is important is HOW a market responds to
    anticipated support/resistance points, and the ability to rally from the
    support low to close at new highs for the day addresses the HOW in
    a relatively strong way.  It is worth noting that the close was higher
    than the previous three trading day closes, adding to the possibility
    of a reaction rally.

     We indicated the 50% retracement area, around 1112.  Depending
    on how close any rally comes to, or exceeds, the 50% mark will
    indicate how strong or weak the market is.  To demonstrate how to
    gauge the potential importance of this area, [we did not draw any
    lines],  look to the left of the 50% line, and it is apparent that there
    was support at 1110 on the 31 December low, and that was a retest
    of the trading range highs throughout November and December. 
    This makes the 50% retracement an area, not an absolute price,
    from which the market will provide important information in HOW
    price responds up there.  Remember, it is not the price level that 
    matters, it is HOW price responds to it that reveals any significance
    to it.

     There is a minor resistance point at 1103.  That was the reaction
    rally high, fourth bar from the right.  It could mark the potential of
    starting a trading range, or it may be ignored.  We cannot know this
    ahead of time, so it is just something of which to be aware, just in case.

     Putting the market into a context provides us to develop a trading
    strategy. Right now, with the marked increased in volume as price
    declined from the highs, it looks like a trend change and prompting
    reason to sell weak rallies.  This makes HOW price rallies into the
    50% resistance area...smaller bars and less volume...valuable
    market feedback for establishing short positions.

     It is always possible that the market may retest Wednesday's lows
    before continuing an anticipated reaction rally.  Present tense
    market activity will have to be watched to see how a sell strategy
    can be implemented.

    S&P D 28 Jan 10

    Themes: SPY, S P, QQQQ
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Comments (2)
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  • GreenMom
    , contributor
    Comments (128) | Send Message
     
    Did you see the massive volume selling right at/after the close on Friday? Thoughts?

     

    www.zerohedge.com/arti...
    31 Jan 2010, 04:44 PM Reply Like
  • edgetraderplus
    , contributor
    Comments (61) | Send Message
     
    Author’s reply » Monday 1 Febraury 2010

     

    Yes. Volume can be very confusing and is an art read, not
    an absolute one. The High volume on Friday's close held
    the sell-off, as opposed to extending it even further, looking
    at an hourly chart.

     

    It became a mini selling climax, when viewed in the context
    that price has dropped from 1150 to sub-1070, virtually
    uncorrected. It would be a clue to take in shorts and
    tighten stops, but not a sign to go long.

     

    Cheers!
    1 Feb 2010, 09:55 AM Reply Like
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